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Why 50% of assessed properties in Metropolis are exempt from property tax

In India around 70 percent of the taxes are generated in urban areas and the rest from the rural areas. In Karnataka for example more than 60% of tax revenues are generated from Bengaluru. Considering income tax, Maharashtra remits around 38% of total income tax followed by Delhi 13.7%, Karnataka 10%, Tamandu 6.7%, Gujrat 4.5%. Considering GST, Maharashtra tops followed by Gujrat, Karnataka, Tamandu and the rest. 

Paradoxically on the one hand farmers are agitating for higher support to agriculture and rural areas, while on the other, urban property owners are experiencing relatively better infrastructure facilities but paying abysmally low tax rates and also enjoying high exemptions on urban properties. In Delhi, 60% of the assessed properties are exempt from income tax, while in Bengaluru, 40% of the assessed properties are exempted from the property tax. In India around 10% of the assessed properties are exempted from property tax. Further, for Delhiites consuming less than 200 KWHs per month, electricity is free!

In order to get a palpable feeling of the relative extent of property tax, in Bengaluru, while comparing property tax, with domestic electricity charges and domestic water charges all on annual basis, the current annual property tax on built property (for a 30’X40’ site) being Rs. 5000 forms hardly 20% of the yearly domestic electricity and water bill. This shows how urban property owners in general and in the Metropolitans in particular are enjoying relatively better infrastructure support and facilities compared with rural areas are charged abysmally low property tax rates including low coverage of properties.

Thus, the urban property taxes which should form a substantial portion of GDP are a miniscule of India’s GDP. The urban property taxes of India form only 0.2% of GDP, while in OECD they form 1.08%, in UK 3.11%, in USA 2.47%, which accordingly are providing better infrastructure facilities. India’s urban property tax forms just 1/6th of OECD’s. 

Why India is unable to properly tax its urban properties even though urban properties are provided with relatively better infrastructure and services? The reasons are: (1) only about 50% of the urban properties in India on an average are taxed; (2) on an average the urban properties are taxed only to the tune of 50% of their potential (3) on an average a substantial portion of urban properties are enjoying property tax exemptions and (4) the taxation methodology has been archaic. Therefore, the Urban Local Bodies can realize immense tax potential and generate tax revenues through property valuation based on vintage, square footage, furnishing, use of GIS and other modern ICTs.

Bengaluru and Jaipur for instance are collecting only 5% to 20% of their tax potential. The property tax revenue per capita per year varies is also abysmally low in cities ranging from from Rs. 2676 in Pune, Rs. 2053 in Bengaluru, Rs. 1121 in Mumbai, Rs. 182 in Chandigarh, to Rs 7 in Jaipur (2015-16). The property tax revenue as percentage of own tax revenue ranges from 75% in Patna, 62% in Bengaluru, 44% in Pune, 12% in Chandigarh, 8% in Mumbai, 1% in Jaipur. 

Thus, it is crucial for the Urban Local Bodies to properly tax the urban properties and realize the revenues for welfare. There are clear pointers that the tax potentials exist largely in urban areas since they are bubbling with economic activity and hence need to support the cause of rural areas in general and farmers in particular by paying property taxes in relation to the relatively better infrastructural, electricity, communication, banking, health, hospital, educational, transport facilities enjoyed.

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Views expressed above are the author’s own.



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